WCDefenseCA

A recent article on MarketWatch covered the efforts of the California Restaurant Mutual Benefit Corporation in combating insurance fraud.

The article focused on a solid victory for the self-insured group.  CRMBC’s investigation lead to charges being filed against a former manager of Jack-in-the-Box.  Jeanette Gallo entered a plea of no contest on two counts of felony fraud linked to her workers’ compensation stress claim for a robbery in which she participated.

Fraud is a regular topic for this blog, particularly because of its permanent damage – employers will never recover the money fraudulently obtained; it is always spent long before any charges are filed.  The only remedies are deterrence, which requires the cooperation of law enforcement, and prevention, which can be achieved through the proactive efforts of employers.

Having read the MarketWatch article, I reached out to the CRMBC to find out more about their anti-fraud program.  I was lucky enough to speak with Joe Burgess, the Senior Executive Vice-President at CHSI, the program administrator for the CRMBC.

What he described came across as a practical, thorough, and clearly effective program to detect, prevent, and deter the white-collar robbery of California employers by disloyal and unscrupulous employees.

The program begins with education.  CRMBC’s members are given information on how to investigate fraud and how to properly (read: legally) respond to it.

Joe explained that the first three days following an alleged injury are key – after that, witnesses get forgetful, surveillance tapes get written over, and the physical evidence that would normally poke holes in the applicant’s story gets cleaned, put away and forgotten, as the business stops being a fraud crime scene and returns to being a business.

“The key to success in fighting fraud is immediate, documented investigation by the employer and engagement with the employee,” says Joe.

Members are kept updated by newsflash e-mails, training sessions, and a library of materials on the membership website.

The next phase is the bigger investigation, which covers the applicants using surveillance and background checks, and the providers, making sure they are actually performing the services they are billing for (unlike some providers we’ve heard of).

The final stage is the deterrence, which includes cooperation with law enforcement to see these cases prosecuted and the fraudsters convicted.  But, as any prosecutor will tell you, the best evidence on which to build a case would probably have been collected by the employer at the time of the alleged “injury.”

But the value of the program is not in the final step, says Joe: “Success in fighting fraud is not measured in arrests and convictions – those are not that common.  Success in fighting fraud is fewer serious indemnity claims – because  the employer puts processes in place such as rapid response, good initial investigation, [and] engagement with the employee.”

Fraud is a parasitic plague which saps the strength of the workers’ compensation world.  To stop these ticks in their tracks, employers must become their own guardsman – the employers are the best situated to take the lead here.

As Joe puts it, “we can control what we do, not what others do – but by creating the right structured environment we can make it less likely that fraud will flourish.”

The refreshing winds of September are filling the air, and as they sweep in, they bring with them that rosy scent of fresh legislation: as always, fiery, thick, and perfectly half-baked.  Two pieces of would-be/will-be law have come under the popular spotlight recently.  The first is that of Assembly Bill 889 put forward by Assemblyman Tom Ammiano (D – San Francisco).

The bill would require rest-breaks, over-time pay, and (you guessed it) workers’ compensation insurance for domestic workers such as care persons, nannies, babysitters and cleaners.

While exempting babysitters under the age of 18, I expect this bill, if made law, to send presently free-lance domestic workers into the arms of organized companies.  No matter how much I want to see a perfectly good classic movie ruined by a modern-recreation in a theater, I have no intention of hiring a human resources staff to help me comply with this law while hiring a babysitter for the evening.  I imagine the typical parent in California will likely feel the same way.

So free-lancing, self-employment for babysitters and other domestic workers might decrease, insurance profits may go up, and Sacramento will press harder on small employers with its left hand while continuing to squeeze larger businesses with its right.

The second piece of legislation is Senate Bill 684, which makes it more difficult for insurance companies to have and to enforce arbitration clauses in their workers’ compensation insurance contracts, by requiring a separate disclosure of the existence of the arbitration clauses, the venue and choice of law of the arbitration, and the fact that they are negotiable.

Authored by State Senator Ellen M. Corbett (D – San Leandro), the legislation was greeted with enthusiasm by Insurance Commissioner Dave Jones in a Department of Insurance Press Release.

Many insurance companies are regional or national, and so would normally be subject to the contract laws of several states (wherever their policy holders entered into the contract).  Arbitration clauses allow all disputes to be resolved in one state, and the insurance company’s legal department needs to know only one state’s laws.

Now, insurers will have to either face increased costs in negotiating, quoting, and preparing insurance contracts, or retain different legal departments for every state in which they offer their services.  But while the costs of operation go up, workers’ compensation insurance rates are set by law and cannot be increased.

SB 684 has passed both the Assembly and the Senate and now awaits Governor Brown’s signature.  Perhaps, if the legislation is signed into law, an update will be necessary on the benefits of self-insurance.